Adventures 'n Canada's North

Wednesday, April 17, 2013

Spectrum Transfer Policy To Test Government's Resolve on Wireless Competition: The issue of spectrum transfers has generated considerable attention
over the past few weeks as Industry Canada prepares to unveil a transfer policy in response to the proposed sale of spectrum by Shaw to Rogers. Industry Minister Christian Paradis has made it clear
that he is uncomfortable with the proposed sale, acknowledging that the
intent of the 2008 spectrum auction set aside was not to have the
spectrum end up in the hands of incumbents. While the incumbents and
their supporters are raising the concerns about market uncertainty and potential lawsuits,
the reality is that the government's policy on the Canadian wireless
market has been clear since 2007. Despite the efforts of the CWTA and
the incumbents to convince politicians and the public that Canada is a
competitive market, the government believes more competition is needed.

The Conservatives' policy on wireless competition solidified in 2007,
when Prime Minister Harper shuffled then-Industry Minister Maxime
Bernier (who most believed was opposed to government intervention in the
form of a set-aside or other measures) with Jim Prentice. Within
months, Prentice unveiled the government's policy with the headline "Government Opts for More Competition in the Wireless Sector." In case there was any lingering doubt about where the government stood, the release noted:

Recent studies comparing international pricing of wireless services
show Canadian consumers and businesses pay more for many of these
services than people in other countries. These services are key to
strengthening the competitiveness of Canadian business.

In the years that followed, the government continued to support
measures for greater competition - backing
the Wind Mobile entry despite concerns about foreign financing
("The policy of our government is to encourage choice and
competition in wireless and Internet markets. Ours was the
government that set aside spectrum during the 2008 auction to allow
new entrants to compete. New entrants mean more competition, lower
prices and better quality services for Canadians.") and later relaxing
foreign ownership restrictions for the smaller players in the
telecommunications market ("the goals remain steadfastly the same:
increased innovation, increased competition, better service and
better prices for consumers"). More recently, it announced the
next spectrum auction rules with caps on spectrum ownership designed
to limit the ability of the incumbents to control all the newly
issued spectrum.

Despite these measures, the policies have had only limited success.
Prices have declined only modestly and the vision of robust
competition from a strong fourth carrier remains a distant hope
(though the situation may be better
in Quebec with a stronger fourth carrier and more aggressive
provincial regulation). Moreover, there is a sense that the new
entrants may throw in the towel, cashing out to the incumbents and
leaving Canada with higher prices and further reduced competition.

The responses
to the recent consultation
on spectrum transfer makes it clear that half-measures will no
longer work. Past efforts have included set-asides without
fully addressing roaming and tower sharing; foreign investment
without fully opening the market, or new spectrum with caps that do
not allow for a robust competitor. The response to spectrum transfer
issue suggests that the government should either go all-in or it
should be prepared to declare that its policies have failed.

The incumbents are unsurprisingly opposed to further government
policy measures. For example, Bell is most vociferous
in its opposition as it is reluctant to even respond to
Industry Canada's questions. It is opposed to a policy aimed at
creating four competitors and believes that the government should
encourage spectrum transfers for their most optimal use (never mind
the hoarding and non-use of spectrum by the incumbents). Further,
Bell is against any caps or other measures designed to foster
greater competition. Rogers is also opposed
to a competitive assessment and spectrum concentration analysis.
However, should the government implement such measures, it argues
that it should only apply to future spectrum (thereby grandfathering
its deal with Shaw).

On the new entrant side, the message is plain: either fix the
competitive environment or we want out. The most obvious call for
spectrum transfers comes from Mobilicity,
which says the government must help to find ways to raise capital
for future spectrum auctions or it should refrain from implementing
any new rules on spectrum transfers. Wind
Mobile and Public
Mobile are more nuanced, focusing on the need for stronger
policy measures to facilitate competition but making it plain that
failure to do could lead to future spectrum transfers. Wind Mobile
essentially says there should be no new restrictions on transfers
until the government has addressed the competitive conditions in the
Canadian marketplace. It points to four:

the forthcoming spectrum auction rules will not allow
non-incumbents to gain sufficient spectrum to support LTE

non-usage of spectrum, such as in the case of Shaw, should be
revoked and made available to the new entrants

active regulation is needed to address high domestic roaming
charges

increased regulation is needed to deal with tower co-location

Public Mobile emphasizes some of the same issues, including the
problems with the forthcoming 700 MHz spectrum auction (insufficient
for a non-incumbent to develop an LTE network), the need for
retaining set-asides in the AWS spectrum, and ensuring that all
future spectrum auctions account for spectrum advantages held by the
incumbents.

So where does that leave the Canadian government?

Following the incumbents' advice is a non-starter. For the past 5
1/2 years, the government has made it clear that it believes the
Canadian wireless market is uncompetitive, resulting in high prices
for consumers and businesses. Given the ongoing competition
concerns, doing nothing is not an option. That said, neither is
maintaining the current approach of half-measures. It is time for
the government to go all-in with all the policy levers aimed at
fostering increased competition. That will require:

future set-asides and limits in spectrum holdings by single
entities (as is being discussed
in the U.S.)

enforcing use-it-or-lose-it rules on spectrum so that unused
spectrum is reallocated

enforceable measures on domestic roaming and tower sharing so
that new entrants have a viable path to competitiveness

increased CRTC regulation of consumer wireless issues

encouraging the Competition Bureau to play a more active role
in sector

The CWTA and the incumbents will scream, but the public will
strongly support the measures. Industry Minister Christian Paradis said in
March that the government "has worked hard to increase competition
in the Canadian wireless sector." Unless Paradis is prepared to take
further policy steps, the efforts of the past few years may soon be
wiped out.

Secrecy the Standard as Canada Enters Trans Pacific Partnership Talks: Despite growing opposition in Canada, the Canadian government has
begun formal participation in the Trans Pacific Partnership
negotiations, aimed at establishing one of the world's most
ambitious trade agreements. As nearly a dozen countries - including the United States,
Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore,
Mexico and Vietnam - gathered in New Zealand last week for the 14th
round of talks, skeptics here have already expressed doubts about
the benefits of the proposed deal.

Canada has free-trade agreements with the United States, Mexico,
Chile and Peru, leaving just six countries - currently representing
less than 1 per cent of Canadian exports - as the net gain. Moreover, the price of entry may be high, since leaked documents
suggest the deal might require a major overhaul of Canadian
agriculture, investment, intellectual property and culture
protection rules.

While the substance of the TPP is cause for concern, my weekly
technology law column (Toronto
Star version, homepage version) argues the more immediate
issue is the lack of transparency associated with both the
negotiations and Canada's participation in them. The talks remain
shrouded in secrecy, with a draft text that is confidential; public
interest groups are largely banned from the venue where the
negotiations are being held.

Moreover, the Canadian government has failed to engage openly with
the public on the TPP. Foreign Affairs has created an insider
"consulting group" that will be granted access to secret and
confidential information regarding the negotiations (members of the
group are required to sign a nondisclosure agreement). The
department has not publicly disclosed the existence of the
consulting group or indicated who might be granted privileged access
to otherwise confidential information.

It continues a trend that started earlier this year when the
government launched a public consultation on Canada's potential
participation in the TPP. The public consultation ran for six weeks,
yet the government never revealed the results. The individual
submissions were not posted online and no public report summarizing
the responses was ever published.

Yet, according to documents obtained under the Access to Information
Act, the government was overwhelmed with negative comments urging
officials to resist entry into the TPP and the expected pressures
for significant intellectual property reforms as part of the deal.

In addition to tens of thousands of form letters and emails
criticizing the TPP, the government received hundreds of individual
handcrafted responses that unanimously criticized the proposed
agreement.

A review of more than 400 individual submissions did not identify a
single instance of support for the agreement. Rather, these
submissions typically expressed concern with the prospect of
extending the term of copyright or adopting restrictive digital lock
rules.

The documents also revealed that the Canadian business community was
split on the agreement, with numerous companies and associations
identifying concerns about the potential direction of the TPP.
Leading telecommunications companies, including Bell, Rogers, Shaw
and Telus, cautioned against changes to Internet provider liability
rules; groups representing the blind warned against new restrictions
to accessing digital materials; Oxfam Canada worried about the TPP's
impact on pharmaceutical pricing; and the Canadian Library
Association expressed fears about a reversal of recent changes to
copyright damages rules.

Canada spent months lobbying other governments for entry into the
TPP, despite launching a public consultation that revealed serious
discomfort with Canadian participation. Now, the government seems
committed to keeping the public largely in the dark on where Canada
stands on an agreement that could radically transform our economic
policy.